In Distinctions in Claims of “Fraud on the Court,” Common Law Fraud and Judiciary Law 487, I explained the various concepts and remedies relating to the general rubric of “fraud on the court” under New York State law. And in Claims Against Attorneys Under Judiciary Law 487 Can be Brought in Subsequent Plenary Actions, I explained the interplay between New York CPLR 5015, which provides the procedures for seeking to vacate a judgment, including for alleged fraud, and New York Judiciary Law Section 487, which provides a cause of action and remedies against attorneys who commit egregious acts of fraud in litigation.
There are similar concepts under Federal law.
FRCP 60
In particular, Federal Rule of Civil Procedure (FRCP) 60 addresses the various grounds and circumstances under which relief from a judgment can be obtained, including for alleged fraud or fraud on the court.
As it relates to fraud, FRCP 60 has two basic sections for seeking to vacate prior judgments. Under one section, there is a one-year limitation for seeking that relief, while the other section allows relief without a time deadline. Thus, in relevant part FRCP 60 provides:
(b) Grounds for Relief from a Final Judgment, Order, or Proceeding. On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons: …
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
…
(c) Timing and Effect of the Motion.
(1) Timing. A motion under Rule 60(b) must be made within a reasonable time—and for reasons (1), (2), and (3) no more than a year after the entry of the judgment or order or the date of the proceeding.
(d) Other Powers to Grant Relief. This rule does not limit a court’s power to:
(1) entertain an independent action to relieve a party from a judgment, order, or proceeding;
[Or]
(3) set aside a judgment for fraud on the court.
The grounds under FRCP 60(b) are generally limited to fraud that specifically impacted the judgment being challenged, while the “fraud on the court” under FRCP 60(d) is intended to address circumstances that have broader impact on the integrity of the judicial process.
Second Circuit’s Decision in Marco Destin
The United States Court of Appeals for the Second Circuit recently addressed FRCP 60(d)(3)’s requirements in Marco Destin, Inc. v. Levy, No. 23-1330 (2d Cir. Aug. 8, 2024). The Court ruled that (1) the standard for reviewing a District Court’s determination of equitable principles under FRCP 60(d) was the “abuse of discretion” standard instead of “de novo” review; and (2) a party who seeks to challenge a prior judgment in a subsequent independent action must have exercised appropriate due diligence in potentially detecting the alleged fraud during the pendency of the prior action. If the party could have detected the fraud while the action was pending, it will not be able to challenge the judgment so procured later in a subsequent action.
The facts in Marco as relevant to this discussion involved a trademark dispute. The alleged owner of the trademark sought to enforce the trademark and ultimately obtained a stipulated judgment from and against the alleged infringer. After the stipulated judgment was entered, the ostensible trademark owner lost a different litigation that challenged the trademark because it had been fraudulently procured from the United States Patent and Trademark Office (USPTO). Marco, the party who had previously entered into the stipulated judgment, then commenced another action in the federal court in the Southern District of New York, seeking to vacate that stipulated judgment based upon alleged “fraud on the court” under FRCP 60(d)(3), claiming that judgment was obtained “in partial reliance on a trademark registration that [was] fraudulently procured from” the USPTO.
In its new action, Marco asserted two causes of action, for “fraud on the court” and “fraud,” and demanded vacatur of the stipulated judgment, as well as sanctions and money damages. Defendants moved to dismiss the complaint pursuant to Rule 12(b)(6). The District Court granted the motion, “[c]onstruing the ‘fraud on the court’ claim as an independent action for relief from a judgment under Rule 60(d)(3), the district court concluded that Marco Destin was not entitled to the extraordinary remedy of vacatur based on its own lack of diligence in uncovering [defendants’] misrepresentations and concealment concerning the [subject] trademark.”
The Second Circuit reviewed the historical context of FRCP 60(d) and specifically the inherent authority of the courts to vacate a judgment based upon a fraud on the court, observing that “a district court has ‘discretion in determining whether to entertain independent actions for relief’ and may look to ‘traditional equitable principles to guide its decision.’” (Citation omitted.)
After determining that the standard of review was “abuse of discretion,” the Second Circuit ruled that the District Court had not abused its discretion in rejecting the effort to vacate the stipulated judgment.
The Second Circuit explained the governing principles as follows:
“Generally, claimants seeking equitable relief through independent actions must . . . (1) show that they have no other available or adequate remedy; (2) demonstrate that [their] own fault, neglect, or carelessness did not create the situation for which they seek equitable relief; and (3) establish a recognized ground – such as fraud, accident, or mistake – for the equitable relief.” … Among those “recognized ground[s]” is fraud on the court. Id. at 661. To obtain relief on that basis, the plaintiff “must prove, by clear and convincing evidence, that the defendant interfered with the judicial system’s ability to adjudicate impartially and that the acts of the defendant must have been of such a nature as to have prevented the plaintiff from fully and fairly presenting a case or defense.” [Citations omitted.]
The Second Circuit noted that “the district court dismissed Marco Destin’s independent action for fraud on the court on the equitable grounds that Marco Destin had a reasonable opportunity to uncover the fraud during the underlying action.” The Second Circuit then found “no abuse of discretion in how the court reached that conclusion.” In particular, the Second Circuit noted that “courts generally will not grant relief under Rule 60(d) if the plaintiff could have prevented the fraudulent judgment through ‘proper diligence.’” The Second Circuit continued, “[t]hat is what the district court found here when it concluded that, with ‘due diligence,’ Marco Destin could have exposed [defendants’] fraudulent efforts to conceal the [competing] ownership of the [subject] trademark.”
Commentary
As I have explained often, courts frequently require those alleging any type of species of fraud to act reasonably themselves. In the underlying common law cause of action for fraud, that is embodied in the element of “justifiable” or “reasonable” reliance. It is also embodied in the standard for extending the statute of limitations for claims of actual fraud to within two years of the fraud having been actually discovered or from when it could have been discovered with “reasonable diligence.” (CPLR 213(8).)
As shown by the Second Circuit in the above Marco decision, the concept of due diligence also plays a prominent role in assessing the grounds for seeking to vacate a judgment under Federal procedure based upon alleged “fraud on the court.”